Financial Data and Key Metrics Changes - Revenue for the third quarter was $67.1 million, down 9% year-over-year and 4% year-to-date, but up 13% sequentially [29] - Adjusted EBITDA was $7.3 million, exceeding expectations and higher than the top end of the guidance range of $4 million to $6.5 million [6][33] - Operating expenses increased to $53.5 million, primarily due to restructuring charges and increased selling, general, and administrative expenses [30] Business Line Data and Key Metrics Changes - The Enterprise Division generated 70% of total revenue, with revenue of $47.3 million, down from $51.9 million in the prior year [34] - The Education Division's revenue was $18.6 million, down 8% compared to the prior year, but subscription revenue grew 13% [39] - Adjusted EBITDA for the Education Division decreased to $2.1 million from $3.1 million last year due to lower revenue [39] Market Data and Key Metrics Changes - North America segment revenue was $37.1 million, a decrease of $3.5 million from the prior year, with subscription and subscription services revenue down 4% year-to-date [35] - International direct operations revenue was $7.5 million, a decrease of $1 million, primarily due to challenging business conditions in Asia and the UK [36] - The balance of billed deferred subscription revenue in North America was $45 million, down from $47.2 million in the prior year [36] Company Strategy and Development Direction - The company is focused on cost reductions while maintaining investments in growth initiatives, particularly in the Enterprise North America business [6][32] - A new Chief Marketing Officer has been appointed to accelerate marketing efforts and penetrate the total addressable market [22] - The company expects to grow its education business year-over-year despite uncertainties, with strong demand for its "Leader in Me" program [25][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate economic uncertainties and continue winning large deals [8][46] - The revised revenue guidance for the fiscal year is now between $265 million and $275 million, reflecting ongoing uncertainties and timing risks [9][42] - Management anticipates a meaningful increase in adjusted EBITDA and free cash flow in fiscal year 2026 due to cost reduction actions [43] Other Important Information - The company has completed cost reduction initiatives that are expected to yield annualized savings of $8 million in fiscal year 2026 [32] - The percentage of clients in multi-year contracts increased from 55% to 58%, indicating a strong client retention strategy [21] Q&A Session Summary Question: Can you share milestones regarding the enterprise division's performance? - Management highlighted the increase in new logos and expansion within existing clients, emphasizing the separation of sales teams for better focus [51][53] Question: What are the expectations for new school additions in the education division? - Management expects to meet or exceed the previous year's new school additions, citing the effectiveness of the "Leader in Me" solution [62][63] Question: Can you break down the guidance reduction by segment? - The reduction primarily stems from timing issues in service delivery and ongoing uncertainties affecting enterprise clients [65][68] Question: How does the company foresee the current environment impacting fiscal year 2026? - Management is planning for continued scrutiny of budgets and tariffs, but remains committed to navigating through these challenges [74][75] Question: What is the current adoption rate of AI service delivery? - Approximately 43% of clients are using the AI sales coach, with expectations for increased adoption as the technology evolves [85]
Franklin Covey(FC) - 2025 Q3 - Earnings Call Transcript